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ICAI Statements
Standards
(Mandatory)
Guidance Notes
(Recommendatory)
Accounting Standards ( 29 + 1 )
A S I (29) {7 of AS 22}
Accounting Standard means the standard of accounting: Recommended by ICAI and Prescribed by Government in Consultation with the NACAS constituted u/s 210A(1) of the Companies Act, 1956.
K.G.Acharya & Co., Chartered Accountants
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4.(d) In our opinion, the Balance Sheet, P&L Account and the
Deviation from AS
Cash Flow Statement dealt with by this report comply with the AS referred to in Sec. 211(3C) of the Companies Act, 1956 subject to the following observations: Certain Transactions are accounted on cash basis vide significant policy No. 2. Further contract works / certain consultancy works undertaken by the company are not accounted on accrual basis vide note 11 on the accounts. The extent of impact on accounts is not ascertained. Accounting Policy No. 13(b) is not in accordance with AS 10 on Fixed Assets. Certain transaction accounted under this policy has the effect of overstating value of Fixed Assets, Depreciation and profit by Rs. 2.05 Crores, Rs. 0.16 Crores and Rs. 1.89 Crores respectively
K.G.Acharya & Co., Chartered Accountants
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Level - I
Listed/Proposed to be listed Cos Banks, FIs, Insurance Cos Enterprises with > 50 crores Turnover in preceding year > 10 crores borrowings at any time during the year Holding & subsidiary Cos of above. Enterprises with > 40 Lacs but < 50 crores Turnover. > 1 crore but < 10 crores borrowings Holding & subsidiary cos of above. Other than Level - I & Level - II cases w.e.f 17-Sep-2003
K.G.Acharya & Co., Chartered Accountants
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Level - II
Level - III
Deferred Tax
Deferred Taxes are Income Tax which arise in one period but because of Timing Difference will have to be actually paid in later years.
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Timing differences -TD- Differences between TI and AI for a period that originate in one period and are capable of reversal in one or more subsequent periods.
Permanent differences -PD- are the differences between TI and AI for a period that originate in one period and do not reverse subsequently.
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Deferred Tax
Taxable Income
Accounting Income
As per P&L A/c As per IT Return
Current Tax
(applicable rate/law)
Rs. 70 cr
Timing Difference Rs. 20 cr
Tax Expense
Deferred Tax
(substantively enacted rates /law) Average rate ?
Rs. 100 cr
Permanent Difference
Rs. 10 cr
No Tax effect
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Deferred Tax
Accounting Income
As per P&L A/c
Taxable Income
As per IT Return
Rs. 80 cr
Current Tax
Rs. 90 cr
(DTL)
or
Timing Difference
Reversal or DTA
DTA Prudence
Rs. 20 cr
Permanent Difference
Rs. 10 cr
No Tax effect
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Computation of DT
STI
AI +/- PD +/- TD TI
CT = IT on TI (Applicable tax rates/laws) DT = IT on (+\- TD)(Latest known tax rates/laws) TE = CT DT
(MAT - CT) is to be finally added to TE as a special case
K.G.Acharya & Co., Chartered Accountants
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Case Study -1
As as 31st March PBT - AI Add: Depreciation - A/c's Less: Depreciation - IT Total Income - TI TD-being Depn differential CT -30% of IT DT-30% of TD Tax Exp.(CT-DT) TE= IT on (AI+/-PD)
1 100 20 30 90 -10
Computer Pur. value (Rs. In Crores) 50 2 3 4 100 100 100 12 7 4 12 5 2 100 102 102 0 2 2 31 1 30 30
Depreciation Rate Tax Rate Co's Act IT Act 40% 60% 30% 5 6 7 8 9 10 100 100 100 100 100 100 1000 3 2 1 1 0 0 50 1 0 0 0 0 0 50 102 101 101 101 100 100 1000 2 1 1 1 0 0 0 30 0 30 30 30 0 30 30 30 0 30 30 30 300 0 0 30 300 30 300
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27 30 -3 0 30 30 30 30
31 31 30 1 1 0 30 30 30 30 30 30
As as 31st March 1 PBT - AI 100 Add: Depreciation - A/c's 20 43B disallowance 5 40A(3) disallowance 10 Less: Depreciation - IT 30 43B disallowance 0 Sec.10 exemption 20 Total Income - TI 85 TD -5 CT -IT on TI DT-30% of TD Tax Exp.(CT-DT) TE= IT on (AI+/-PD) AI+/- PD 26 -2 27 27 90
8 100 1 0 17 0 0 20 98 1 29 0 29 29 97
30% 9 100 0 0 18 0 9 20 89 -9 27 -3 29 29 98
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CT
DT
TD
Sales tax not paid until filing of Return of Income Income from exempted Govt. Bonds Depreciation as per Books of Accounts Depreciation as per Income Tax Act Disallowance U/s. 40A(3)
+ + +
PD
}Difference
}is TD
PD
Compute:
1. CT
IT on TI
TI = TD =
2. DT IT on +/- TD 3. TE CT - DT
(9+3-2+5-10+1) = 6 CT = 35% of 6 = 2.10 [(3+(5-10)] = -2 DTL = 30% of -2 = - 0.60 2.10 - (-0.60) or 2.10 + 0.60 = 2.70
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AS - 22 - Taxes on Income
31.3.2005 31.3.2004 (Amt in Rs.) 2393768 372917 2766685 1590784 802984 2393768
Deferred Tax Liability for earlier years Deferred Tax Liability for the current year
TD Liability: DT @ DT @ Relating to fixed asset: 31.3.2005 33.66% 31.3.2004 35.875% WDV as per Companies Act 29849597 20063103 WDV as per Income Tax. Act 21630092 13390579 8219505 6672524
K.G.Acharya & Co., Chartered Accountants
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Scope of AS 22
Taxes on income include all domestic and foreign taxes, which are based on taxable income
Does not cover Dividend Distribution Tax.
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DTA Arising due to Basis of Recognition Unabsorbed Business Virtual Certainty (Judgment) & & Depreciation Loss Convincing Evidence (Fact)
ASI 9
Reasonable Certainty
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Re-Assessment (Right)
Relates to DTA Previously unrecognized
Review (Duty)
Relates to DTA Previously recognized
Transitional Provisions
On the first occasion, the enterprise should recognize, the deferred tax balance that has accumulated prior to adoption of this statement as DTA/DTL with the corresponding credit/charge to the revenue reserves. Non Corporate Entities : Capital Account
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I. INCOME Gross Sales Less: Excise Duty Net Sales Other Income TOTAL - I II. EXPENDITURE Material Cost Employees' Remuneration & Benefits Manufacturing Expenses Repairs & Maintenance Selling, General & Administration Expenses Interest Depreciation TOTAL - II III. PROFIT BEFORE TAX (I-II) IV. Provision for Current Taxation Provision for Deferred Tax Provision for Fringe Benefit Tax V. Profit after Tax (III - IV)
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Disclosure
Break-up of major components of DTA / DTL to be disclosed. DTA and DTL to be set off if permissible under tax laws but to be shown separately otherwise. Evidence supporting the recognition of DTA to be disclosed, if an enterprise has Unabsorbed Depreciation / Tax Losses to be carried forward.
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Presentation of CT - Para 27
An Enterprise should offset assets and liabilities representing current tax if the enterprise: a) has a legally enforceable right to set off the recognized amounts; and b) intends to settle the asset and the liability on a net basis
K.G.Acharya & Co., Chartered Accountants
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Accounting Standard 22
Accounting for Taxes on Income
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(4) Affects Debt -Equity Ratio and TOL / TNW (Double edged sword)
K.G.Acharya & Co., Chartered Accountants
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(6)
(8)
(9)
Affects Capital Adequacy Norms in case of banks (Tier-I & Tier-II Capital) - Capital to Risk Weighted Assets Ratio (CRAR)
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(2) Is it OK not to recognize DTL on the ground that the enterprise intends to carry out a major capital expansion programme in near future?
(3) Is it OK not to recognize DTL on the ground that the company expects that there will be losses both for accounting and tax purposes in near future?
K.G.Acharya & Co., Chartered Accountants
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(5) Accounting for Taxes on Income in Consolidated Financial Statements as per AS21 ASI 26 : Total TE = TE in Parent Co + TE in Subsidiary Co. GC 18/2002 : DT in CFS = simple aggregation of DT balances across the group
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(7)
(8) (9)
-69
I.e
275
14
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AS 22 Conclusion
- Increases transparency Matching / accrual concept upheld - Tax effect Accounting - ensures that Tax Charge in
future accounting periods is not vitiated by Timing Differences
- Catch 22 standard
- A Tough job for CAs certifying on DT.
K.G.Acharya & Co., Chartered Accountants
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THE BEGINNING